20838
VALUE ADDED TAX – two coin-operated pool tables supplied by amusement company to be played by students at Huddersfield University Students’ Union – whether supply was made by amusement company or Union – if supply made by amusement company whether supply was an exempt supply – section 4 and schedule 9, group 10, item no. 3 VATA 1994 – Held that supply was made by amusement company and was not an exempt supply – appeal dismissed

	
MANCHESTER TRIBUNAL CENTRE 			   

 
 	
	AMUSEMENT SOLUTIONS LTD	Appellant
	
	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:	IAN VELLINS (Chairman)
		MARY AINSWORTH (Member)	
			
Sitting in public in Manchester on 15 September 2008

Noel Tyler appeared for the Appellant

Julian Winckley, Counsel, instructed by the Solicitor’s Office of HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2008

DECISION

The appeal

1.	In this appeal, the Appellant is Amusement Solutions Ltd, a limited company carrying on business supplying pool tables, amusement machines and associated services from premises at Castleford, West Yorkshire.  The Appellant is registered for Value Added Tax under registration number 797 128 779.  The Appellant took over as a going concern the business of K L Leisure Limited with effect from 1 May 2006.  Since a date prior to 1995 KL Leisure Ltd had supplied two pool tables, together with various amusement machines and gaming machines, installed in the bar area at the Huddersfield University Students’ Union to be played by student members at that Union premises.  The two pool machines were operated for play by the students by inserting a coin into a slot in the machines.  It was claimed by the Appellant in April 2006 that over the previous two and a half years KL Leisure Ltd had accounted for the whole of the VAT on the gross cash in the machines, and had paid 70% of the residual balance to the Students’ Union.

2.	From 25 April 2006 correspondence was initiated by KL Leisure Ltd with the Commissioners as to whether VAT had been accountable correctly by KL Leisure Ltd on the whole of the cash takings in the pool machines.  There then ensued correspondence between the Commissioners and KL Leisure Ltd, the Students’ Union and the VAT consultants of the Union and the Appellant, which culminated in a ruling by the Commissioners dated 17 July 2007 that KL Leisure Ltd had been supplying the goods and services, that KL Leisure Ltd was not an eligible body making an exempt supply, and that KL Leisure Ltd had accounted for the VAT correctly.  It is against that decision that the Appellant now appeals.

3.	At the hearing of this appeal in Manchester on 15 September 2008 the Appellant was represented by its VAT consultant, Mr. Noel Tyler, and the Respondents were represented by Mr. Julian Winckley, Counsel.

4.	Oral evidence was heard from Mrs. Clare Platts, a cashier employed by the Students’ Union, and from Mr. Gareth Weeks, a student and officer of the Union.

The legal framework

5.	Section 4, Value Added Tax Act 1994 (“VATA 1994”) deals with the scope of VAT on taxable supplies as follows;

“4(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.
(2) Taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.”

6.	Section 5, VATA 1994 states at (2)(a) “’supply’ in this Act includes all forms of supply but not anything done otherwise than for a consideration;”.

7.	Section 31(1), VATA 1994 provides that a supply of goods or services is an exempt supply if it is of a description for the time being specified in schedule 9.

8.	Schedule 9, Group 10, VATA 1994 deals with exemptions in relation to sport, sports competitions and physical education.  Item no. 3 exempts “the supply by an eligible body to an individual, except, where the body operates a membership scheme, an individual who is not a member, of services closely linked with and essential to sport or physical education in which the individual is taking part”.  Note (2A) states that “subject to Notes (2C) and (3), in this Group “eligible body” means a non-profit making body which – (a) is precluded from distributing any profit it makes, or is allowed to distribute any such profit by means only of distributions to a non-profit making body; (b) applies in accordance with Note (2B) any profits it makes from supplies of a description within Item 2 or 3; and (c) is not subject to commercial influence.”

9.	The regulations with regards to the persons liable for payment of VAT to the tax authorities are to be found at Articles 193 to 199, and Article 202 of the Council Directive of 28November 2006 on the common system of Value Added Tax.  Article 193 states that “VAT should be payable by any taxable person carrying out a taxable supply of goods or services except where it is payable by another person in the cases referred to in Articles 194 to 199 and 202”.

The correspondence

10.	On 25 April 2006 KL Leisure Ltd wrote to the VAT Helpline of the Commissioners at Newcastle-upon-Tyne stating that one of its customers, Huddersfield University Students’ Union had received advice from its local VAT officer suggesting that its share of pool table income should be treated as an exempt supply.  KL Leisure Ltd then stated “over the past two and a half years we have treated the income from the pool tables as follows… gross cash in the machine, less VAT and 70% of the residual balance to the Union.  We have been accountable for the whole of the VAT on the gross income and have duly paid this over.  If the officer’s advice was correct then the Union would be able to reclaim the VAT on its share.  Could we please have guidance on this advice and if correct would you advise on the correct procedure to enable the Union to reclaim the VAT?”.  On 8 May 2006 the Commissioners replied in terms that whether the Students’ Union should be accounting for VAT on this income depended on whether they were seen as charging the students for playing, or KL Leisure Ltd for the right to site the tables in their facilities with KL Leisure Ltd charging the students for playing.  The Commissioners stated that it was not possible to identify this from the information that had been provided and asked for a copy of the contract between KL Leisure Ltd and the Students’ Union so that there could be identified who was supplying the right to play pool.

11.	On 15 May 2006 the Students’ Union wrote to the Commissioners in Newcastle, stating that KL Leisure Ltd supplied the pools tables and the income was shared at 70% in favour of the Union and 30% in favour of KL Leisure Ltd.  The letter stated that there was no written contract, and that VAT on the total sum had been, prior to September 2005, accounted for by KL Leisure Ltd.  The letter suggested that fees paid by members of the Students’ Union to play pool were exempt from VAT under Group 10, being a sports activity qualifying for exemption.

12.	On 21 May 2006 the Commissioners’ National Advice Centre in Glasgow wrote to the Students’ Union stating that fees charged for playing pool are exempt from VAT under Item 3, Group 10, Schedule 9 of the VATA 1994, but however only eligible bodies can exempt their supply.  The Commissioners pointed out that paragraph 4(1) of Public Notice 701/45 defines eligible bodies as follows:

“Your organisation is an eligible body when:
•	It is non-profit making; and
•	Its constitution includes a non-distribution clause or limits its distribution to another non-profit making club on winding-up or dissolution; and
•	It actually uses all profits or surpluses from its playing activities to maintain or improve the related facilities or for the purposes of a non-profit making body; and
•	It is not subject to commercial influence.”

The Commissioners wrote that there was no indication given that KL Leisure Ltd was an eligible body.  That being the case the Commissioners advised that KL Leisure Ltd was correct to account for VAT on its income from the pool tables, and that exemption did not extend to an outside company receiving income from pool tables in the building of the Union.

13.	On 21 May 2007 Mr. Noel Tyler, the VAT consultant, replied to the Commissioners requesting the Commissioners to amend their advice.  In this letter Mr. Tyler stated:

“It is always important to consider the entity that is making the supply, and the relationship between that body and others in the supply chain.  There can only be one provider of the facilities to play the game of pool as far as the players are concerned and, in the absence of anything to the contrary, it is necessary to look at the perception of the recipient of the supply.

I contend that the players would be bound to consider that the pool tables, and the facilities to play pool, were provided to them by the Union in the same way that they must surely consider that the beer sold at the bar was supplied to them, not by the brewery or the wholesaler, but the Union that operated the bar.

Additionally since the income share from the pool tables is split in favour of the Union, as opposed to KL Leisure Ltd, it must be the Union that is the supplier in this case.

Since University of Huddersfield Students’ Union qualified, and still qualifies, as an eligible body under the provisions of Note (2A) to Group 10 of Schedule 9 to the Value Added Tax Act 1994 it must follow that all of the pool table income generated is properly exempt from VAT under the provisions of Item 3 of Group 10 of Schedule 9 to the VATA 1994.

I say all of the income because, it seems to be that KL Leisure Ltd, in this case, is acting as the agent of the Union in the provision of the facility to play pool to the Union members.  As such the liability for VAT of the income follows that of the principal – in this case exempt to the extent that the playing of pool is by Union members”.

14.	On 19 June 2007, the Commissioners’ National Advice Centre at Southend On Seas replied to Mr. Tyler asking for further information as to who was responsible for emptying the tables, who owned the tables, what were the arrangements for repair and maintenance, and how the Students’ Union treated the split of income of 70/30 in favour of the Union from KL Leisure Ltd in the Union’s books and records.  On 23 June 2007 Mr. Tyler replied that the tables were owned, repaired and maintained by Amusement Solutions Ltd – formerly KL Leisure Ltd – and that the company was also responsible for the emptying of the machines.  He stated however that the complete income from the tables was treated as the income of the Union for all other accounting and taxation purposes.

15.	On 17 July 2007 Mrs. G Shanahan, a higher officer of the Commissioners at their National Advice Service at Southend On Sea replied to Mr. Tyler setting out the Commissioners’ reconsideration in respect of the request by Mr. Tyler that the Commissioners reviewed the previous decision of their Glasgow office that VAT should be accounted for in full by KL Leisure Ltd on the pool table takings at the Union.

16.	Mrs. Shanahan stated as follows:

“In the absence of any written contracts, my interpretation of the arrangements in place are based on the information provided.  These arrangements are that during the period in question ie prior to September 2005, the pool tables were owned, repaired and maintained by Amusement Solutions Ltd – formerly KL Leisure Ltd.  You have told us that they are also responsible for the emptying of these machines.  When KL Leisure emptied these machines VAT was accounted for in full on the total take.  This VAT was paid over to us by KL Leisure on their returns.  The net amount was then split between the Union receiving 70% and KL Leisure retaining 30%.  This profit sharing arrangement was in place and no formal rental or hire arrangement existed.

Having established the arrangements in place, I would now like to look at the VAT position.  Notice 701/13, Gaming Machines and Amusement Machines, Section 4.1 looks specifically at who must account for VAT on machine takings.

It states..

“The person who supplies the use of the machine to the public must account for VAT on the takings.  There can only be one person who does this and it will usually be the person who exercises day-to-day control over the machine and is entitled to the takings.”

It is my opinion that while the Union may control access to the site of the table, it is not responsible for maintaining the table, emptying it and providing the equipment to play the game nor, can we assume, do they control the pricing policy.  On this basis therefore I am of the opinion that KL Leisure were correct to account for output tax on 100% of the take and that given the arrangements in place between the Union and KL Leisure, it is KL Leisure who are in control of the operation of the table and liable for the VAT therein.  I would disagree with your conclusion that KL Leisure were acting as agent of the Union in the provision of the facility to play pool to the Union members.  In fact I am of the opinion that KL Leisure are acting as the principal with profit-share being paid to the site owner, effectively a charge for placing the machine.  To conclude I am of the opinion that KL Leisure have accounted for the VAT correctly.

I must emphasise that the advice given is based on the information supplied.  If the nature of the transaction changes in technical detail, or the relevant details provided were incomplete or incorrect, we will not be bound by this ruling”.

17.	Mr. Tyler indicated that he did not receive the Commissioners’ letter of 17 July 2007, and having sought a response, he received a letter from the Commissioners dated 18 January 2008 forwarding a copy of Mrs. Shanahan’s letter of 17 July 2007.

18.	Mr. Tyler replied on 21 January 2008 stating that in his view Section 4.1 of Notice 701/13 did not have the force of law and suggested that the relevant section appeared to written for the convenience of the Commissioners and was over-simplistic and somewhat equivocal.  He stated “apart from the obvious comment that a pool table is neither a gaming machine nor an amusement machine, the Notice wrongly assumes that the party that exercises day-to-day control over the machine is the one entitled to its takings.  It also assumes that only one party has a claim to the machine takings – this is often not the case.  In any event the Notice disregards the contractual relationship between the player of the machine (or pool table), the party in day-to-day control and the ultimate machine supplier”.

19.	Mr. Tyler pointed out the provisions of Article 193, and suggested that there was nothing in any of the Articles which permitted the Commissioners to seek output tax from any party other than the one which is carrying out the supply of services to the user.  He stated that contract law must therefore prevail.  Mr. Tyler stated that he remained of the opinion that the supply of the facility to play pool at the tables was made at all times by the Union, that the Union qualified as an eligible body under the provisions of Note (2A) to Group 10 of Schedule 9, VATA 1994, and as such the playing of pool by Union members resulted in exempt income for the Union under the provisions of Item 3 of the same Group.  He stated that an appeal was being made to the Tribunal.

20.	On 21 January 2008 Mr. Tyler sent a notice of appeal to the Tribunal on behalf of Amusement Solutions Ltd.  It was stated that the grounds of appeal were “the supply of the facility to play pool is not made by the Appellant but by the University of Huddersfield Students’ Union.  As such output tax has wrongly been accounted for by the Appellant.  The supply by the University of Huddersfield is exempt from VAT under the provisions of Item 3 of Group 10 of Schedule 9 to the VATA 1994 since the Students’ Union is an eligible body under Note (2A) of the same Group”.

Evidence at hearing of appeal

21.	Mrs. Clare Platts gave oral evidence at the hearing of the appeal.  She is employed by the Students’ Union as a cashier and as a person who prepared accounts up to trial balance, and has been employed since 1995.  She stated that when she commenced her employment KL Leisure Ltd had machines in the Union bar and had done so for a number of years prior to her employment.  She stated that KL Leisure Ltd supplied gaming machines, video machines, music machines, quiz boxes and two pool tables which were situate in the bar area of the Union.  She stated that there were two pool tables in the bar area.  She could not say whether or not the pool tables carried the names of KL Leisure Ltd or Amusement Solutions Ltd on the tables.  She stated that the cash from the pool tables was emptied from the machines each Friday during term time by an employee of Amusement Solutions Ltd, and similarly in the past by an employee of KL Leisure Ltd.  She stated that that employee of the Appellant emptied the takings of the gaming machines the other machines and the pool tables, counted the takings, and then Mrs. Platts received a bag of money, together with a sheet of paper on which the employee of the Appellant had stated three items, firstly the rental on the gaming machines, secondly the Union’s 70% share of the profits of the video machines, the jukebox and other machines, and thirdly the 70% share of the Union in respect of the takings of the two pool tables.  She stated that she treated the cash in the bag received by her as a sporting activity.  She said “I think it is our share of the takings”.  She also said “I think they have a cut”.  Accordingly, she said that physically on a Friday during term-time she received the Union’s share of everything in cash in the bag and she then accounted for it in the Union’s accounts.  She said that she made an entry for the rental and the shares and deducted VAT from the pool takings and treated it as exempt.  She stated that having put down in an account what cash had been left to the Union by the Appellant, someone else employed by the Union enters figures on spreadsheets and deals with the VAT on behalf of the Union.  Mrs. Platts said that she did not gross up the amounts in cash that she received and did not think that anyone else in the Union grossed it up as far as she knew.

22.	Mrs. Platts stated that in her view it was the Union and not the Appellant who actually made the pool tables available for play by the students.

23.	Mrs. Platts stated that the pool tables were supplied by the Appellant and that they brought the machines and the tables in to the Union premises at the start of the university year.  She said that the pool tables were not available for use during university holidays as the bar area was closed down.  Usually the Appellant removed the pool tables during the summer vacation, and at times when the bar area was being decorated.

24.	Mrs. Platts confirmed that the pool tables were coin-operated.  She said that she did not accompany the employee of the Appellant who emptied the machines and pool tables of cash.  She said that the Appellant kept the Appellant’s share of 30% of the money in the pool tables.  Mrs. Platts was asked how the split of the money in the pool tables was worked out.  She said at first that she did not know if the employee of the Appellant worked out the 70% due to the Union.  She was then asked about the calculation and stated that if the two pool machines had taken £100 during the week, the Union would get £70 and the Appellant £30 and she said that the Appellant would then have to deduct VAT on that £30.

25.	Mrs. Platts had not brought with her any documents or papers.  She said that she was not aware of any written contract between the Appellant or KL Leisure Ltd and the Union, or any correspondence indicating the nature of the split, the basis for the split, or how it had been calculated.  She had not brought with her any of the pieces of paper that were given to her weekly by the employee of the Appellant which accompanied the bag of cash.

26.	At that stage, Mr. Tyler stated that it was the case of the Appellant that the Appellant retained from the pool machines 30% of the coins in the machines plus VAT on the total 100% of the cash in the machines, and that the money returned to the Union in the bag of cash represented 70% of the net takings of the two pool machines after output tax had been accounted for.

27.	In answer to questions from Mr. Winckley on behalf of the Commissioners, Mrs. Platts stated that she did not know when KL Leisure Ltd had first entered into the relationship with the Union and she did not know who approached whom.  She said that she had not seen any badges or signs on the pool tables but could not say that there were no such signs.  She said that the Appellant maintained the tables, and the assistant bar manager would telephone the Appellant if there was a major problem, but if there was a minor problem such as the balls not all being released or if a coin became stuck the bar manager could open the machine and sort that out, but the key to the cash box on the pool machines was kept by the Appellant, and no key was kept by the Union.  She said that this was for security reasons.  Mr. Winckley asked Mrs. Platts why the Union did not have control over the money.  Mrs. Platts replied that the Union got its share of the money which the Union was happy with.  She said that it was a service for the members and the Union got its share of the money.  She said that she did not count the money when the cash boxes of the two pool machines were opened, because the Union did not have any control over the cash boxes.  She said that the Union had only a few staff.  The Union left it to the employee of the Appellant to open the cash boxes and count the money.  Neither Mrs. Platts not any other employee of the Union checked the money or were present to oversee the employee of the Appellant when he emptied the cash boxes.

28.	Mrs. Platts said that with the bag of cash that she was given by the employee of the Appellant was a sheet with various items filled in.  She stated that she was only interested in one figure.  She said that there were some other calculations on the sheet or sheets but that she did not look at any other figures.  She said that she thought that among the other figures was a reference to how much had been retained by the Appellant, how much had been handed to the Union, and an amount for VAT.

29.	Mr. Winckley asked Mrs. Platts if she could say whether the Appellant’s employee took out from the takings of the pool tables 7/47 before the balance was split between the Appellant and the Union.  Mrs. Platts replied that she could not truthfully answer that question as she just dealt with the figure on the sheet of what the Appellant had left for the Union.  She said that the VAT matters of the Union were dealt with and checked by another person who was responsible for the tax affairs of the Union, although Mrs. Platts said that she helped a bit.

30.	Mrs. Platts said that the treated the Union’s share of 70% as exempt income.  She said that she did not recall any damage having been done to any of the tables, but thought that the tables were insured on the insurance policy of the Union.  She said that the split of 70% to the Union and 30% to the Appellant had been decided before she became employed by the Union.  She did not know if the Appellant had fixed the split, but imagined that at the beginning the Union may have put out to tender for the supply of the pool tables.  She said that to her knowledge there had not been any dispute as to the operation of the machines and the arrangement had worked well.  She said that she trusted the Appellant and the predecessor of the Appellant, and was not present at the emptying of the cash boxes, but stated that she or an employee in the bar would be around the area when the employee of the Appellant emptied the boxes.  She said that when the bar area was being decorated, the Appellant took away the pool machines on the instructions of the Union.  She said that the Union got on really well with the Appellant.

31.	Evidence was given at the hearing of the appeal by Mr. Gareth Weeks, who is a student at Huddersfield University and is also a sabbatical officer of the Union and vice president of the sports societies of the Union.  He said that he played pool on the two tables of the Union in the bar area.  He said that he could remember nothing that stood out to his knowledge in respect of any name that might be on the pool tables, although he said that a name might be indicated on the underside.  He stated that each pool table was opened for the balls to be released by a player inserting a £1 coin in a slot in the table and pressing a button.  If any ball became stuck a student would go to the bar and tell the bar staff, and the bar manager would come out with a key which would sort out the release of the balls.  The Union had no key to the cash box in the table.  He said that as a student he thought that the facility for playing pool was provided by the Students’ Union.  He said that he had only knowledge of the Appellant because on the gaming machines there was the Appellant’s logo on the top.

32.	In answer to questions from Mr. Winckley, Mr. Weeks said that there might be a sign of the Appellant on the pool tables but it did not stand out and people did not look for such a sign.  He said that he had no knowledge of the financial arrangements between the Appellant and the Union.  He said that he had never seen any damage to the pool tables.

33.	In re-examination by Mr. Tyler, Mr. Weeks was asked who provided the beer that he drank at the bar.  Mr. Weeks replied that in his view, the brewery company supplied the beer and the Union paid the brewery company and passed on the beer to the students who then paid the Union for the beer consumed.

34.	Mr. Tyler indicated that the Appellant had not produced, and were not producing, any documents other than the copy correspondence with the Commissioners.  Mr. Tyler stated that he was not able to call to give evidence any director or employee of the Appellant.  He stated that a director of the Appellant had not attended at the hearing of the appeal due to a crisis at work.

Submissions

35.	 We heard submissions from Mr. Winckley on behalf of the Commissioners and from Mr. Tyler on behalf of the Appellant.

36.	Mr. Tyler, in his letter to the Commissioners dated 21 May 2007 had argued that KL Leisure Ltd was acting as the agent of the Union in the provision of the facility to play pool to the Union members, with the liability for VAT of the income following that of the principal - namely the Union - and that it was exempt.  Mr. Winckley had prepared submissions arguing that the Appellant was not an agent of the Union and the relationship between the Appellant and the Union was that of principal to principal.  At the commencement of the hearing Mr. Tyler stated that there was a mistake by him in that paragraph of his letter of 21 May relating to the claim as to agency, and he was not now saying that KL Leisure Ltd or the Appellant was acting as an agent of the Union.  Accordingly, Mr. Tyler was not submitting that KL Leisure Ltd or the Appellant was acting as an agent of the Union in the provision of the facility to play pool to the Union members, and accordingly, although Mr. Winckley had submitted a skeleton argument on behalf of the Commissioners that the legal relationship between the Union and the Appellant was not one of principal and agent, Mr. Winckley did not deal with these arguments in his oral submissions, as the point was not pursued by Mr. Tyler.

37.	Secondly, the representatives of the parties made it clear at the commencement of the appeal that the Tribunal was not being asked to make any decision as to the VAT liability of any supplies made by the Union, including whether the Union is an eligible body for the purposes of Note 2 to Group 10 of Schedule 9 to VATA 1994.  It was agreed by the representatives that the Union was not a party in the appeal and the question of the VAT liability of supplies made by the Union and whether the Union was an eligible body were issues which were being dealt with separately by the Union with the Commissioners.

38.	It was contended on behalf of the Commissioners that the decision of the Commissioners was properly and correctly made on the basis of the information provided by the Appellant and the Union that the pool tables were installed at the Union by the Appellant and its predecessor who at all times owned the same, that the Appellant was responsible for the repair and the maintenance of the tables, that the Appellant was responsible for emptying the cash box in the tables, that the income from the tables, after accounting for VAT by the Appellant is split 70:30 in favour of the Union, and that there is no formal written contract between the Appellant and the Union.

39.	Upon the basis of that information, it was submitted by the Commissioners that the Commissioners correctly decided as follows.  The provision permitting exemption pursuant to Item 3 of Schedule 9 of Group 10 was not engaged as the Appellant was not an eligible body within the meaning of Note (2A) of Group 10.  It was the Appellant, having control of the table in terms of responsibilities for providing, maintaining and emptying the tables who was required to account for output tax on the takings.  This was consistent with the Commissioners’ published policy as to VAT consequences relating to the provision of gaming and amusement machines.  The Appellant was not acting as agent for the Union in the provision of the facility to play pool at the Union and was at all times acting as principal with a profit share paid to the Union in terms of a charge for placing the machine.  The supply of use of the table was thereby made by the Appellant to the students and the income from the table was liable to tax at the standard rate.

40.	The Commissioners denied that the Union was making the supply of the facility to play pool.  The Commissioners argued that day-to-day control of the table was with the Appellant in terms of maintenance, collection of monies and similar, and the Commissioners contended that that was a determinative factor in terms of identifying the nature and direction of the supply.  The Commissioners concluded that the Appellant was correct to account for output tax at the standard rate on the gross income from the tables, irrespective of the fact that the balance of the income thereafter was split between the Appellant and the Union.  The Commissioners contended that the provision permitting exemption as within Item 3 of Group 10 of Schedule 9 to VATA 1994 was not engaged as the Appellant was clearly not in fact and law an eligible, non-profit making body for the purposes of Note (2A) thereof.

41.	The Commissioners took the view that the Appellant was required to (as it had done historically) account for output tax on the whole of the “take” from the pool tables situate in the Union.

42.	Mr. Winckley submitted that it was unfortunate that no evidence had been called at the hearing from the Appellant as to how the Appellant saw the relationship between the Appellant and the Union.  It was clear that the Appellant historically had been accounting for VAT on 100% of the takings from the pool machines.  He submitted that Mrs. Platts could not say with any certainty as to how the VAT was dealt with, but it was the case for the Appellant, as stated in correspondence, that the Appellant emptied the cash boxes of the pool machines of their takings, deducted VAT and then split the balance 70% in favour of the Union and 30% in favour of the Appellant.

43.	Mr. Winckley submitted that although the Commissioners’ Public Notice 703/13  relating to gaming and amusement machines was only a form of guidance and had not the force of law, it was the Commissioners’ view as to how VAT should be dealt with in respect of pool tables.  Paragraph 4.1 of that notice stated “the person who supplies the use of the machine to the public must account for VAT on the takings.  There can only be one person who does this and it will usually be the person who exercises day-to-day control over the machine and is entitled to the takings.”  Mr. Winckley submitted that it was clear that it is the Appellant who has control over the take from the machines, and Mr. Winckley suggested that it was the Appellant and its predecessor KL Leisure Ltd who had fixed the split.

44.	He submitted that the Union had no access to the coin boxes of the tables and that this was a key factor.  He submitted that if it was truly the Union which was making the supply to the students, it would be reasonable to expect that the Union would have control over the monies, and on the evidence in this case it does not.  The Commissioners contended that the entitlement to the takings lay with the Appellant and it was the Appellant who is responsible for VAT.

45.	He submitted that Section 4 of the VATA 1994 sets out the scope of VAT on taxable supplies and that this is a proper provision within the regulations set out in Article 193 of the Council Directive.

46.	Mr. Winckley submitted that it was unfortunate that the Tribunal had not been given access to key documents that supported the relationship between the Appellant and the Union.  He submitted that Mrs. Platts could not take matters any further with regard to documentation, and the Appellant itself had not supplied such documentation.  Mr. Winckley submitted that it was the Appellant who made the supply to the students and that it was the Appellant who dictated the division of the takings and the Appellant had taken it on itself to account for VAT on the total of the takings.  The Union had no access to the monies in the cash box in the pool tables.  He submitted that if the Union had been making the supply the Union would have had control over the monies.  He submitted that the better view was that it was the Appellant who made the supply of pool playing facilities to the students within the meaning of Section 4, VATA 1994.

47.	Mr. Winckley submitted that the student, Mr. Weeks, was not able to add any significant evidence on behalf of the Appellant.  He had no contact with financial; matters.  He had just played pool.  Weight could not be attached to his comment that he believed that it was the Union that supplied the facility.  It was only his opinion, and he had also been of the opinion that the brewery company had supplied the beer (not the Union).  He was not sure as to whether there was any logo of the Appellant on the tables, but that question was not a significant factor in the appeal.

48.	Mr. Winckley submitted that the Appellant had not produced any accounts either of the Appellant or the Union, which might have been helpful.  No contract or correspondence between the Appellant or the Union has been produced.  He submitted that that went against the Appellant.  He submitted that the control over the cash box was a crucial factor and that the better view was that the control rested with the Appellant who was the party that was making the supply for the consideration of the share of the money in the cash box.  By Section 5(2)(a) VATA 1994, supply includes all forms of supply, and Mr. Winckley submitted that the supply by the Appellant consisted of the money in the cash boxes and the Appellant was liable to account for VAT on 100% of such takings.

49.	Mr. Tyler submitted on behalf of the Appellant that the Commissioners’ Notice 701/13 did not have force of law, was only a guidance, and in any event related to the takings of gaming and amusement machines.  He submitted that the Commissioners had assumed that the  person who exercised day-to-day control was the person who made the machines available to the public, and he submitted that that was not reasonable or correct.

50.	Mr. Tyler further submitted that there was nothing in the Articles of the Council Directive of 28 November 2006 which permitted the Commissioners to seek output tax from any party other than the one who was carrying out the supply of services to the user.  He submitted that contract law must therefore prevail.  He submitted that the supply of services was made by the Union to the students and was not made by the Appellant.  He submitted that the liability to VAT, if any, remained with the Union.  He further submitted that the Public Notice 701/13 was contrary to the provisions of Article 193 and therefore ineffective.  He submitted that there was no basis for a finding on the facts that the Appellant is the provider of the provision of the facility to play pool to the students at the Union.

51.	He submitted that the Commissioners’ representative had incorrectly read paragraph 4.1 of the Public Notice as referring to who controls the takings, rather than who exercises day-to-day control over the tables.  He submitted that it was the Union who had day-to-day control.  He suggested that it was the Union who dealt with issues that arose when a ball got stuck.  He submitted that the Union was the party who students thought supplied them with the facilities.  Both Mrs. Platts and Mr. Weeks were unaware of any signs of the Appellant on the pool tables.  Mr. Tyler argued that people using the tables will not be aware of the Appellant, and he submitted that the Appellant did not have any day-to-day control over the tables.  He submitted that the fact that the Appellant had the key to the cash box and the Union did not, did not give rise to the conclusion that it was the party who had the key to cash box that was controlling the provision of the pool tables on a day-to-day basis.  He submitted that there were many consensual arrangements whereby a party did not have any control over the money that was in a table or machine.  Neither party would have wanted there to be a number of keys for the cash boxes for security reasons.  He submitted that there was no evidence to support the contention of Mr. Winckley that it was the Appellant or its predecessor who set up the split of the takings between the Appellant and the Union.  Mrs. Platts was not an employee of the Union when the arrangement started.  Mrs. Platts had given evidence that both the Union and the Appellant were happy with the way things worked.  He submitted that the opening of the cash boxes was part of the service provided to the Union by the Appellant.  The Appellant was submitting that 100% of the income generated by the pool table was the income of the Union, and the Appellant was only required to account for VAT on the 30% of the net monies paid by the Union to the Appellant.

Findings of fact and conclusions

52.	We have carefully considered all the evidence in this appeal together with the legal framework and submissions.  We make the following findings of fact and reach the following conclusions in this appeal.

53.	The Appellant in this appeal is Amusement Solutions limited.  In or about 2007 the Appellant took over as a going concern the business of KL Leisure Ltd.  At some stage prior to 1995 KL Leisure Ltd had agreed with the Huddersfield University Students’ Union to place in the bar area of the Union in Huddersfield two pool machines, together with other types of gaming and amusement machines.  The pool tables were put into operation for the playing of pool as a result of the insertion of a coin (currently £1) into a slot on each table.  Each table contained a cash box which collected the coins.  The only key to each cash box was retained by KL Leisure Ltd.

54.	It is unfortunate in this appeal that neither the Appellant or its witnesses were able to produce any written contract between KL Leisure Ltd and the Union, nor indeed any correspondence that may have taken place between KL Leisure Ltd and the Union or between the Appellant and the Union.  We heard evidence from Mrs. Platts who was an employee of the Union since 1995 that the Union was happy with the arrangement that it had made with KL Leisure Ltd prior to her employment.

55.	We find that the two pool machines were delivered at the start of each academic year to the Union by KL Leisure Ltd until 2007 and thereafter by the Appellant.  The machines were removed usually at the end of the summer term or when there were decorations taking place at the Union premises.  We find that the tables were owned by KL Leisure Ltd, that they were repaired where necessary by KL Leisure Ltd and maintained by KL Leisure Ltd.  We have seen no evidence that the Union insures the tables although Mrs. Platts appeared to be of the opinion that the tables may have been covered on the insurance policy of the Union.  We have seen no evidence as to whether or not the Appellant insures the tables.

56.	We find that on every Friday during the university term time an employee of KL Leisure Ltd (later Amusement Solutions Ltd) attends at the Union premises and empties the cash boxes of the pool tables.  He uses the key owned and retained by the Appellant.  The Union has no key to that cash box.  On the same occasion the employee of the Appellant empties the cash boxes of the other machines owned by the Appellant on the Union’s premises.  We find that the employee of the Appellant alone empties the boxes and counts the cash contained therein.  He is not supervised or accompanied by anyone from the Union.  The employee of the Appellant counts the monies and prepares a list on which he calculates the rental on the gaming machines, the Union’s share of the other machines, and the Union’s share or split of the monies in the cash boxes of the pool tables.  Mrs. Platts gave evidence that she was then given a bag of money containing coins which included those rentals, shares and the split of the pool table monies.  Mrs. Platts indicated that she was also handed some further sheets containing calculations which she did not pay attention to, and she subsequently passed the sheets of paper and the monies to another employee of the Union who was responsible for the accounts and the tax affairs of the Union.

57.	It is unfortunate that Mrs. Platts was vague in her evidence as to how the money in the bag relating to the pool tables had been calculated.  Her evidence was that the takings from the cash boxes of the pool tables had been split as to 70% in favour of the Union and 30% in favour of the Appellant.  She was uncertain as to whether the cash, which remained in the bag relating to the pool tables, consisted of 30% of the total takings from the tables, or 30% after the Appellant had deducted VAT from the total takings.  It was the case of the Appellant, although not supported by evidence, that the employee of the Appellant when putting the money into the bag had retained for the Appellant the VAT on 100% of the takings, had retained for the Appellant 30% of the residue, and had left in the bag for the Union 70% of the residue after such VAT had been deducted.  In the absence of any evidence as to the precise method of such calculation we cannot make a finding of fact as to whether or not the Appellant had deducted VAT from 100% of the takings, before splitting the balance as to 70% to the Union and 30% to the Appellant.  However, we have reached our decision in this appeal on the assumption that the Appellant, and the Appellant’s representative are correct in their assertion that that was the manner in which the Appellant had dealt with the takings from the tables.

58.	We find that KL Leisure Ltd, during the period prior to September 2005, for an unspecified period of time, had accounted to the Commissioners for the whole of the VAT on the gross cash in the two pool tables and had duly paid over such VAT to the Commissioners.

59.	We find that the two pool tables have at all material times been owned by KL Leisure Ltd and later by Amusement Solutions Ltd.  We find that the tables have been repaired and maintained when necessary by them.  We find that they have been responsible for the emptying of the monies from the cash boxes in the tables.  We make no findings as to who was responsible for the insuring of the machines, as no satisfactory evidence has been provided by the Appellant in relation to the insurance of the tables.  Mrs. Platts seemed to think that the Union had covered the tables for insurance purposes under the Union’s insurance policy, but we have seen no evidence as to this.  We can make no finding on the evidence before us as to which party stipulated a split of 70% to the Union and 30% to the Appellant.  No contract or correspondence has been produced by the Appellant.  Mrs. Platts was not in the employment of the Union at the time that the arrangements commenced, as she has been employed by the Union since 1995, and the arrangements with regard to the pool tables occurred at some time prior to her employment.  The only finding that we can make is that it would appear that both the Appellant and the Union are happy with such split.

60.	In correspondence, the Appellant’s representative had argued that the Appellant and its predecessor was acting as the agent of the Union in the provision of the facility to play pool to the Union members.  At the hearing of the appeal the Appellant’s representative indicated that the Appellant was not now arguing that KL Leisure Ltd and the Appellant had been acting as the agent of the Union.  The Appellant has not pursued its submissions relating to agency, and we find in any event that KL Leisure Ltd and the Appellant were not acting as the agents of the Union in the provision of the facility to play pool to the Union members.

61.	It was further indicated to us by the Appellant’s representative and by the representative of the Commissioners that the Tribunal was not being asked to make a finding as to whether the income of the Union arising from the two pool tables was exempt income.  This is a matter being dealt with between the Union who is not a party to this appeal, and the Commissioners, and as requested we make no finding or decision in relation to the income of the Union.

62.	We find that clearly neither KL Leisure Ltd nor the Appellant is in fact or in law an eligible (non-profit making) body for the purposes of Note (2A) of Group 10 of Schedule 9 to VATA 1994.

63.	We find on all the evidence in this appeal that the supply of the services and the facilities to play pool was made by KL Leisure Ltd and later by the Appellant, and not by the Union, as claimed by the Appellant.  We find that output tax has been correctly accounted for by the Appellant on the 100% of the takings from the cash boxes of the two pool tables.  We find that the Appellant was correct to account for output tax at the standard rate on the gross income from the tables, irrespective of the fact that there was a split thereafter between the Appellant and the Union in respect of the balance of the income therefrom.

64.	We find that the evidence and facts in this appeal point to the Appellant as the person concerned in making supplies relating to the playing of pool.  We further find that the Appellant had control of the pool tables.  The tables had been installed at the Union by KL Leisure Ltd and the Appellant, who had owned the tables at all times.  They were responsible for the repair and maintenance of the tables and emptying the cash boxes of the tables.  They received a share of the monies from the cash boxes.  We find that it is a key element that the Union did not hold a key to the cash boxes, but that the key was at all times retained and kept by the Appellant.  We do not find it material that neither Mrs. Platts or Mr. Weeks could recall whether or not there was any sign on the tables.  We do not consider it material as to whether students themselves may or may not be of the opinion that the services are being provided by the Union, although we have taken this into account in reaching our decision.  We have also taken into account the fact that the Union can decide who is eligible to play the machines (ie members of the Student Union), that the pool tables are located in the bar area of the Union, that the split of the cash takings of the tables is weighed as a percentage more in favour of the Union than the Appellant, and the fact that the Union may possibly insure the tables against damage, although the Appellant may also insure the tables (although no evidence was produced as to insurance).  We have weighed in the balance those factors and the arguments of the Appellant, against those factors which favour the arguments of the Commissioners in this appeal, and find that the factors which favour the Appellant’s argument are more than outweighed by those factors that favour the arguments of the Commissioners, namely and in particular that the tables are owned by the Appellant, installed by the Appellant, repaired and maintained by the Appellant, and the Appellant is responsible for emptying the cash box in the tables.

65.	To summarise we find that KL Leisure Ltd and later the Appellant is the supplier of the services of the facilities to play pool on the tables located at the Union.  We find that the decision of the Commissioners was correct, namely that KL Leisure Ltd were liable to account for output tax at the standard rate on the gross cash in the coin boxes of the two pool tables, and that KL Leisure Ltd and the Appellant were not eligible for exemption from VAT, and were not accordingly making exempt supplies.  Accordingly VAT was chargeable as a taxable supply by the Appellant and KL Leisure Ltd on those gross takings of the pool tables under Sections 4 and 5 of VATA 1994.  We find that those provisions are not incompatible with Article 193 of the Council Directive 2006 /112/EC.  We find that the decision of the Commissioners was properly made and in accordance with their published guidelines.

66.	We dismiss the Appellant’s appeal.

67.	The Commissioners made no request for costs, and we make no order as to costs.

MAN/2008/0102

Ian Vellins
CHAIRMAN
Release Date: 21 October 2008